The Securities and Exchange Commission recently charged two firms for acting as unregistered brokers in connection with $79 million in investments made by foreigners seeking United States residency through the EB-5 Immigrant Investor Program. The SEC sued Ireeco LLC, and its successor Ireeco Limited, in an administrative proceeding seeking cease-and-desist relief, as well as disgorgement and civil penalties. The companies, by neither admitting nor denying the SEC’s findings, agreed to be censured and to desist from committing future violations of Section 15(a) of the Securities Exchange Act of 1934, and further agreed to subsequent proceedings to determine what, if any, disgorgement and civil penalties should be paid.
This case is notable in two respects.
First, the SEC did not allege fraud or claim investor harm, but rather pursued a straight Section 15(a) unregistered broker charge – a non-scienter (non-intent) based registration violation.
Second, the SEC Administrative Order is essentially what is called a bi-furcated settlement. Under the settlement’s terms, the Respondents agreed to be censured and subject to a cease-and-desist order from future violations of the broker registration laws, but the determination of what, if any, disgorgement (return of ill-gotten gains) and civil penalties they must pay is left to another day in a hearing before, or through written submissions to, the administrative law judge. However, in fighting disgorgement and civil penalties, the Respondents have agreed that they cannot argue that they did not violate the federal securities laws and cannot challenge the validity of the SEC Administrative Order. Thus, a critical part of this settlement remains unresolved.
This SEC civil enforcement action marks yet another effort by the SEC to regulate the EB-5 Program given its belief that the underlying investments are securities, and its ongoing concerns about abuses in the industry. I am currently representing an individual in an ongoing SEC EB-5 investigation. There is no doubt that the SEC has only just begun to make its mark in this space.
If you have questions, feel free to contact me for a confidential, no cost consultation on the process, your legal rights and strategic options: David Chase, Esq. toll-free at: 800-760-0912 or e-mail at: email@example.com.